Tuesday, December 4, 2012

Cracks Appear In New Oil Deal Between Baghdad and The Kurdistan Regional Government

In September 2012, the Kurdistan Regional Government (KRG)
and Baghdad came to their third agreement over the former exporting its oil.
The previous two times, the deals broke down over disputes over paying the
energy companies operating in northern Iraq. The problem stems from the fact
that the central government wants control over oil policy and contracts, which
comes into conflict with the KRG’s wish to have their own strategy. That
unresolved issue is coming to the fore again as the Kurds dramatically cut
their exports at the end of November. This could eventually lead to the
breakdown of the latest agreement between the two sides.

In November, the Kurdish regional government decided to
reduce its oil exports. According to the state-run North Oil Company, the KRG was only pumping 70,000-80,000 barrels a day by the end of the month through
the northern pipeline to Turkey. Before that, Oil Minister Abdul Karim
Luaibi told the press on October 4 that the Kurds had reached 170,000 barrels a day. For the month, the region averaged 146,000. That was below its
200,000 barrel a day quota that it was supposed to reach that month. Deputy
Premier Hussein Shahristani, who is in charge of Baghdad’s energy policy, said
that payments to the oil companies working in northern Iraq would be stopped,
because the KRG was not meeting its mark. The recent drop in exports then, was
likely due to fears that Baghdad will follow through with Shahristani’s
threats. At the same time, it appears that the KRG lacks the capacity currently
to maintain its export levels, and meet its quota. Officials such as
Shahristani, who has been at the forefront of opposition to the Kurds’
independent energy policy, have used this fact against them. Kurdistan may be
stuck in a Catch 22 in this situation as a result. It could continue to pump
oil at its current rate, but it would know that would be below its mark.
Baghdad would constantly hang that over its head, and use it as an excuse not
to make any payments.

This series of short-term deals is frustrating for the
companies operating in the KRG. Genel Enerji and DNO for example, which operate
the Taq Taq and Tawke fields threatened to stop foreign sales through the
northern pipeline in early October, because they had not been paid yet. Together, the two firms were responsible for 110,000 barrels of Kurdistan’s
146,000 barrels of exports in October. The Finance Ministry eventually sent
just over $500 million to the KRG later that month, which was distributed to DNO at the beginning of December. Kurdish authorities promised that the second installment was to arrive soon afterward, but then later press
reports said that it wasn’t going to be until early 2013. Now there are
questions about whether it would happen at all due to Deputy Premier
Shahristani’s threat. In total, DNO has only been paid $104 million in June
2011 and $60 million in September 2011, and will receive $116 million this
month for all of its exports since 2008. Oil companies in Kurdistan are waiting
for a national hydrocarbon law to be passed, so that there are no more
conflicts over their operations. That would allow them to legally export, and
be able to monetize their investments. Until then, the firms have to rely upon
these unreliable short-term export contracts where they only get paid for a
fraction of their work.

The third export deal between Iraq’s central and regional
governments is still in effect, but it is fraying at the edges. The Kurds are
sending oil through the northern pipeline again, and they have received half a
million dollars to pay the companies that are operating there. At the same
time, it is not meeting its quota, and Baghdad has once again threatened to cut
off payments. The two sides are still far apart on oil policy, and that will
continue to lead to tension and breakdowns in these agreements. If the current
one ends, and there are plenty of signs that it eventually will, it will be
followed by another. The Kurds need these deals with Baghdad to show the energy
companies that they will eventually be able to get a full return on their
investments. The central government welcomes the Kurdish contributions, because
it brings in more money and boosts its monthly export numbers. The problems
rise from the fact that Baghdad holds the purse, and will continuously hold
this over the head of the Kurds until their differences over oil are resolved.
Their positions are so far apart however, that this will not come anytime soon,
so for the foreseeable future official Kurdish exports will be at the mercy of
these volatile agreements.

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About Me

My name is Joel Wing. I have been reading, writing, and researching Iraq since 2002.
I have appeared in Fareed Zakaria on CNN, the Christian Science Monitor, The National, The Daily Dish Columbia Journalism Review, Mother Jones, PBS’ Frontline, the Center for Strategic and International Studies, the Institute for the Study of War, Radio Free Iraq.
I have been mentioned in the books Iraq: From War To A New Authoritarianism by Toby Dodge, Imagining The Nation; Nationalism, Sectarianism and Socio-Political Conflict in Iraq by Harith Al-Qarawee, ISIS Inside the Army of Terror by Michael Weiss and Hassan Hassan, The Rise of the Islamic State by Patrick Cockburn, Iraq and Crimes of Aggressive War by John Hagan, Joshua Kaiser, and Anna Hanson.
My work has been published in Iraq in AK News, Al-Mada, Sotaliraq, All Iraq News Agency and Ur News.
I have written for the Jamestown Foundation and Tom Ricks’ Best Defense Blog at Foreign Policy, and I wrote a chapter for the book Volatile Landscape: Iraq And Its Insurgent Movements.
If you wish to contact me personally my email is: motown67@aol.com